Tesla, Ohio dealers reach a deal

Tesla Motors Inc. struck a deal March 26 with Ohio auto dealers that could allow the electric-car maker to ease a battle over its direct-to-consumer retailing model, at least for the near term.

Under the agreement, Tesla would be allowed to keep operating two company-owned retail stores in the state, and open just one more. The deal requires approval from the Ohio state legislature. The proposed bill would bar all other automakers from bypassing franchised dealers to retail cars.

Diarmuid O’Connell, Tesla’s vice president of business development, said the compromise reached in Ohio should serve as a model to resolve fights with dealers in other states, where Tesla is confronting legislation and regulation aimed at outlawing its company-owned stores.

"I do think the Ohio solution points to a way dealers and Tesla can resolve this issue for the present, while letting both sides see how this develops," O’Connell said. "While on the margin it’s disappointing that we don’t have the ability to grow freely in Ohio, the compromise we achieved in the past 24 hours is sufficient for now."

Joe Cannon, vice president of government affairs for the Ohio Automobile Dealers Association, called the agreement "a very fair proposal that is helpful to both sides." It allows Tesla to keep operating in Ohio, he said, while reinforcing rules its dealer members have abided by for decades.

The political and legal battles have been a distraction for the automaker. Tesla is pursuing a plan to build a multibillion-battery factory, expand overseas, and launch new vehicle lines.

Since establishing its first store in California in 2008, Tesla has come under attack in other states by franchised dealers representing rival brands amid concerns the automaker’s direct-sales model would undermine their businesses. Tesla has defended its business model, arguing that its electric-car technology requires a more hands-on approach in educating its consumers about the vehicles, compared with what a traditional dealership offers.

Earlier this month, Tesla lost a battle in New Jersey to preserve its direct-sales model after state regulators approved a rule change, forcing the company to shut down its retail operations in the state, including two stores. Tesla also is prohibited from selling cars directly to buyers in Texas and Arizona.

Similarly in Ohio, the state’s dealer association had sought to block Tesla from selling cars there.

Tesla is looking to reach a solution with auto dealers in New York, where lawmakers have proposed a bill to outlaw its direct-sales operations, O’Connell said. Tesla operates five stores in New York and has made "significant investment there," he said. "It would be the rational solution to the dealers’ arguments and concerns."